Sally Beauty confirms payment card data breach

Sally Beauty Holdings confirmed Monday that it fell victim to a data breach, an incident that may have coincided with a project to update point-of-sale terminals at its U.S. stores, a recent regulatory filing shows.

The Denton, Texas, based company, which has more than half of its 4,669 stores in the U.S., said it found evidence that fewer than 25,000 records containing credit card data were accessed and possibly removed, according to a statement.

That follows its statement on March 5 that it was investigating "rumors" of a breach but had no reason to believe any credit card or consumer data had been lost.

The data it now says was likely stolen is known as "Track 2" card data. Payment cards have a magnetic stripe on the back that contains three data tracks. Track 2 data contains only the card number and expiration data. Track 1 data contains the card number, expiration data and cardholder's name, and Track 3 is rarely used.

Forensic investigators from Verizon are working with Sally Beauty along with the U.S. Secret Service.

"As experience has shown in prior data security incidents at other companies, it is difficult to ascertain with certainty the scope of a data security breach/incident prior to the completion of a comprehensive forensic investigation," the company said.

"As a result, we will not speculate as to the scope or nature of the data security incident," it said.

A representative of a public relations firm for Sally Beauty said the company could not comment further.

Sally Beauty's annual report for fiscal 2013 shows the company undertook large IT infrastructure upgrade projects worldwide, including installing a new POS system for 2,450 stores in the U.S.

Target and Neiman Marcus blamed recent data breaches on malicious software that had been installed on POS systems, which are modern, software-driven cash registers that process card payments.

Target's POS terminals were infected with a type of malware called a "RAM scraper." The malware recorded payment card details after a card was swiped and the unencrypted data briefly sat in a system's memory.

Sally Beauty wrote in its annual report that the POS system is expected to provide benefits such as enhanced tracking of customer sales and store inventory reports.

The annual report does not specify the kind of POS system it had installed. The company said many of its IT systems are "proprietary, and as a result our options are limited in seeking third-party assistance with the operation and upgrade of those systems."

It warned that the upgrades could affect its business, writing that one risk factor is that "we may be adversely affected by any disruption in our information technology systems."

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